Debt, fraud risks for mobile payment generation
It's easy to pay with app, but maybe too easy, and how safe is it?
For app-happy consumers, conducting commerce with a device is easier than carrying a wallet full of credit and debit cards. Can it also result in a swifter slide into consumer debt or cause greater security concerns?
Not necessarily, say experts and adopters, as long as the mobile wallets and payment apps are used responsibly, but there are risks.
While the technology isn’t universal yet, many fans are ready and eager to kiss their cards goodbye when it is.
According to a 2017 Consumer Payment Study conducted by TSYS, 68 percent of U.S. consumer who have loaded their debit or credit card into a mobile wallet on their smart phone predict they’ll make at least half of their in-store purchases digitally within two years.
When a device becomes a wallet
Chances are you already have a mobile wallet embedded on your smartphone, such as Apple Pay for iPhones and Apple watches, Samsung Pay for Galaxies and Google Pay for Androids. Whichever mobile wallet you have, just open the app, link your credit or debit cards and you’re ready to purchase at a retailer accepting mobile transactions. Just hover your device at the payment terminal, then authorize the transaction with a finger on the screen or the eye recognition function.
Video: How to set up your mobile wallet
Person-to-person payment apps, such as Venmo and Zelle, are also growing in popularity. They allow you to transfer funds with anyone who has the same app. For example, you might want to hire a math tutor for your child. When the session is over, she can make a payment request with the app. Accept, and the money is deducted from your credit or debit account.
Then there are payment apps connected to businesses, such as ride-share companies. Connect your credit or debit card to it and you’ll be billed as soon as you leave the car. Will Hernandez, editor for Mobile Payments Today, says the simplicity of the ride-share model is highly prized. “Everyone wants the Uber type of seamless transaction,” says Hernandez. “We call it the ‘Uberification’ effect.”
The plastic-free generation
Not surprisingly, millennials tend to be mobile wallets’ most ardent supporters. The TSYS study found that 42 percent of 18- to 24-year-olds and 45 percent of 25- to 34-year-olds use the technology, and the numbers drop off at later ages.
“Younger people are of a generation where they don’t have the historical habits of using credit cards the same way their parents do,” says Gavin Rosenberg, vice president of product marketing for TSYS.
Just a few devotees include Dylan Hackley, a marketing professional whose network of friends use Venmo and Splitwise.
“I absolutely love mobile payments, and I always opt for them,” says Hackley. “I have it on my watch. As a runner, who is now getting accustomed to riding a bike in New York City, it’s the perfect way to go somewhere without my wallet and still have the ability to get a drink or even hop in a cab if need be.”
“It’s really the convenience factor,” says Jackson Tilley, a Los Angeles public relations director. “I know I can use my Apple watch linked to my American Express to pay for a quick drink at Starbucks. It’s one less thing to carry around.
“Also, for group dinners, it’s so much easier to have one person charge the whole thing to a single card, rather than splitting the bill 10 ways,” Tilley says. “Venmo and Apple Wallet just make life easier for people like me. I’m glued to my phone anyway, so why not pay with it as well?”
Managing the expenses of social activities is also a major draw for Michael Kaye, an account executive from New York City. “It comes in very handy when planning a vacation and splitting the costs with one or more people, with one person handling booking hotels and travel.”
Mobile wallet users also cite the security benefits of having account information embedded on their device.
Matthew Tilmann, from Allendale, Michigan, is a personal finance writer and committed Apple Pay user. “One of the largest reasons I can think of for the mobile wallet as an advantage is at the gas pump,” says Tilmann. “Too long we’ve heard the horror stories of consumers’ information getting stolen through skimmers, and now with more and more gas stations allowing the use of a mobile wallet, I think this should help tremendously.”
“Visa and Mastercard believe mobile transactions are safer than a card payment,” says Hernandez. “And it is. When you’re using a mobile wallet, the merchant is not getting a real account number, but a one-time card number. It’s called tokenization. If a thief gets hold of the number it will be useless. Fingerprint authorization helps with security, too. Is it foolproof? No. Nothing is, though.”
The ability to thwart crooks from obtaining cards and account numbers is exciting to a lot of mobile wallet users.
“If I were to drop my phone and someone would steal it, it would take like 11 years to crack my code,” says Hackley. “Besides, the moment I lose it I can deactivate the accounts and payments.”
See related: Infographic: Who uses digital wallets, and for what
But what about debt?
The act of taking a card or cash out of a wallet can give shoppers a critical moment of hesitation. It provides an opportunity to ask, “Can I really afford this, and is there a cheaper alternative?”
Instead of taking the bus or walking to a destination, hailing an Uber can be too tempting to pass up. While one $15 ride a month won’t break a budget, five or six a month might.
“Mobile transactions can lead to increased debt because you’re not thinking about it,” says Hernandez. “Budgeting goes out the window. I have to look at my app two to three times a week to make sure I’m not overspending. Going all digital can make people forget. Consumers have to do a lot of checking. Especially with a place like Amazon Go, where you walk in the store, take what you want and then you get charged.”
Research released in 2018 from the Global Financial Literacy Excellence Center at the George Washington University School of Business revealed millennials who use mobile payments do not manage their finances as well as those who use traditional payment methods. They are more likely to hold nearly all forms of debt, including auto loans (34 versus 29 percent), be charged credit card fees (58 versus 45 percent), overdraw their checking accounts (33 versus19 percent) and turn to pawnshops or payday loans (50 versus 23 percent).
“As we become further removed from physical money, the less tangible an experience it becomes and thus less meaningful,” says Tilly. “When we don’t see the dollars leaving our hand, the very concept of money becomes less relatable. I do my best to be aware of what I’m spending, but technology that makes spending easier only leads to one thing – easier spending!”
Not everyone who opts for mobile over plastic is recklessly mired in debt. “It depends on the consumer,” says Hackley. “I don’t shop impulsively. I’ll go to the drugstore to buy shaving cream, Nordstrom to get pants and use my Apple Wallet. That’s it. Now, if it’s the type of thing that can add up over time, maybe that would be different, like a street vendor. If, or when, they take mobile payments, that will probably change because the little things do add up, and I’ll have to pay more attention.”
Lack of mobile ubiquity = cash, cards as backup
Like many mobile wallet users. Tilmann would be willing to abandon all his physical credit cards if every retailer accepted the payments. That’s not likely to happen soon, says Keith Marshall, CEO and president of Unapp, a payment app for businesses and their customers.
“We are a long way off from mobile ubiquity,” says Marshall. “Everything, from the hardware to the software, needs to be in sync. It can’t be a question of if, but an assumption of when.”
Until that day arrives, old-fashioned payment options will remain essential as a backup, especially when traveling, says Erik Hastings, host of the PBS series “Beyond Your Backyard.”
“Never depend on mobile wallets when exploring the four corners of the world,” says Hastings. “Venmo, Apple Pay, etc., are great, but there are many potential problems. You have to have cell service? We take that for granted, especially in big urban centers, but where I go, service is often in and out. If you haven’t planned ahead with payment alternatives, you’re in trouble.
“I always bring my American Express card because it’s accepted worldwide, and I never travel without cash.”
Additionally, mobile wallet aficionados should know that merchants, even in metropolitan environments, can simply choose to not accept contactless payments.
“We’re in an interesting time,” says Hernandez. “It’s cool to have everything on your phone or watch, but there are forces beyond your control that are still making sure people will use cash or cards.”
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